What happened to the honour system?

Revenu Quebec has  played hardball for far too long. According to a partner and chartered accountant with a prominent Canadian financial management firm, the provincial revenue ministry has dropped the honour system and started to treat the average citizen like a crook.

“Revenu Quebec is issuing notices of assessment to taxpayers based on “how they feel in the morning,” he said. In conversations he has had with the ministry, they admitted to inflating amounts so the recipient “moves their ass,” he said. But these imaginary numbers have real consequences.

Case 1:

A Montreal resident opened a cafe in St-Leonard in November 2004. The restaurant went out of business in May 2005 - it was open only seven months. The owner completed his sales tax returns but never filed a corporate tax return due in part to the prohibitive costs of getting a corporate return professionally prepared which costs roughly $1,500.

However, last September he received a notice of assessment for 2004 through 2006 totaling $31,500 and that required him to pay within 20 days even though his sales tax returns proved he owed no tax - something the government could have verified if they’d checked their own files.

“The information seems to travel only when it’s to their benefit,” his accountant said. In fact, information is shared widely between government agencies. For example, Revenu Quebec shares its data with the Régie des rentes du Québec which allows them to calculate retirement pensions and with the Régie de l’ assurance maladie du Québec so it can determine eligibility for the Québec prescription drug insurance plan.

Further, Revenu Québec has reached agreements with police forces and other public bodies, such as the Commission de la construction du Québec and the Régie du bâtiment du Québec.

If the taxpayer doesn’t react quickly enough to the notice of assessment by either filing a return or a notice of objection, the government can - and will - seize the taxpayer’s account.

Case 2:

A 75-year-old Italian non-resident left Canada in 2002 and was cleared of filing tax returns by the federal government in 2003. But the pensioner received an assessment from Revenu Quebec this February for 2004 through 2006, claiming he owed the provincial government $5,329.44 in unpaid taxes.

By March the provincial government had seized his account. His accountant was able to prove he was a non-resident and by June 2008 the government removed the freeze on the account but has yet to return the $5,329.44.

In 2007 and 2008, Revenu Quebec has seized either the bank accounts, a percentage of a salary, or a the personal property of 54,811 Quebecers.

Another concern for the chartered accountant is the increasing rigidity in how the ministry is applying their rules. “It’s not right for the taxpayer,” he said. “Let’s not forget we’re on an honour system here.  And it costs money to prove honesty.”

Case 3:

A couple ran a daycare that closed down in 2006. Their company was audited in September 2006 for 2002 thorough to 2004. They had filed their tax returns but Revenu Quebec disagreed with the amounts of income they claimed.

The ministry auditor disallowed a series of expenses that ballooned their income that the assessment was based on. For example, the couple claimed their income in 2002 was $15,505. The new assessment set it at $37, 766. In 2003 they claimed an income of $18, 002. It was  increased to $48, 381. The $12, 679 in income for 2004 was assessed instead at $60, 777.

In October 2007, the government sent another assessment for 2005 and 2006. Again, the income had been increased: from the $9,256 to $70, 620 for the former and from $7,325 to $60, 777 for the later.

In total, the government said the couple owed $56,749.16 in back taxes.

In December of 2007, their accountant demanded an audit report that detailed why the ministry had discounted certain expenses. He found the auditor had rejected a series of receipts that would usually be accepted. This included a statement of account from Imperial Oil, the company that provided the daycare with its heating oil. Revenu Quebec was asking instead for individual invoices from each transaction with the company.

After the accountant filed a notice of objection to the new assessments, the government dropped the assessments to close to the original amount claimed by the couple. They’re still waiting to have other receipts, including from the oil company, approved.

The accountant noted that the Canada Revenue Agency was “much more customer service oriented.”

Their auditors are there to help the taxpayer, he said, and are far less quick to act in a seizure manner.

In fact, elsewhere in Canada, personal income taxes are only paid at a federal level under the auspices of the CRA.

Since 1954, under the government headed by former Premier Maurice Duplessis, Quebec began to levy income tax on its citizens. The goal was increased autonomy and to retain more spending power for the province. Quebec is the only province which levies income tax on individual citizens. Alberta and Ontario both collect corporate income tax.